In the options pits, the most-popular contracts were the October 30 puts (LEH=VF)
leh%3dvf
and October 35 puts (LEH=VG)
leh%3dvg
. A put gives the holder the right to sell shares at a certain level, and implies a bearish outlook for a company.

"There may be a bit of a lingering fear of a downside surprise in tomorrow's earnings announcement," Senna added. That uncertainty -- combined with earlier rumors, since dispelled, that Lehman was bankrupt -- has driven up the option's volatility in recent weeks.

Historically, Lehman options have a volatility of about 60. That figure climbed to 115 last week, and now sits at about 100.

Lehman is set to report fiscal third quarter results after the market closes on Wednesday. The company said last week that trading losses in emerging markets will trim $60 million from its net income, lowering earnings per share to $1.10.

Lehman's concerns have been echoed by other brokerage houses, many of whom have seen their shares shed 50 percent of their value since mid July. In addition to the trading losses in emerging markets -- primarily Russia -- the investment houses are also feeling pinched by the slowdown in IPO underwriting and merger and acquisition activity. See related story.

The woes have been reflected in the performance of the Securities Broker/Dealer Index, which trades on the Amex. That index is currently just a few points above a 52-week low.

Trading in the index options ($XBD)
$xbd
has been largely limited to retail players "trying to pick the bottom," said a floor source. Trading in the index has been anemic in recent weeks, but most of the open interest is on the call side, indicating bets on the index rebounding.

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